Auto Industry fear shortage of semi-conductor due to Ukraine-Russia conflict

With omicron passing away without much impact and supplies showing signs of recovery, it looked as if Indian Auto Industry was at the cusp of recovery until Russia invaded Ukraine. This will once again have ripple effects on the global automobile supply chain, Federation of Automobile Dealers Associations (FADA) raised the concern in its near-term outlook.

Till the time the Russia-Ukraine conflict doesn't come to an end, FADA also changes its outlook from 'neutral' to 'negative'.

In its near-term outlook released on Friday FADA said, "Russia is one of the largest producers of rare-earth metals especially Palladium, which is an essential metal for semi-conductors. Ukraine on the other hand is one of the biggest producers and exporters of Neon Gas, which is used in the manufacturing of semiconductors. Due to the ongoing war, we once again fear the shortage in semi-conductors which will create additional supply-side issues for PVs."

According to FADA, with crude breaching the $110 mark, the government will not be able to hold prices of petroleum products for long. Post state election results, oil marketing companies will increase fuel prices by at least Rs 10-15 per litre.

While this will act as an obstacle for 2-wheeler sales, with educational institutions and offices now fully open and Gudi Padwa round the corner, we may see some increased interest in 2- wheeler as well as the Bus segment. Bus segment has witnessed a long dry spell of almost 2 years. The ongoing Russia - Ukraine war brings a new set of challenges for Indian Auto Retail as raw materials for semiconductors will disrupt supplies and crude breaching $110 mark will act as a hindrance on customer sentiment.

According to February 2022 sales data released by FADA, on a year-on-year basis, total vehicle retail for the month of February 2022 decreases by 9.21 per cent. It is 20.65 per cent down when compared to February 2020, a regular pre-COVID month.

On a YoY basis, 3-wheeler and commercial vehicles were up by 16.64 per cent and 7.41 per cent.

Two-wheeler, passenger vehicle and tractors sales in February 2022 fell by 10.67 per cent, 7.84 per cent and 18.87 per cent year-on-year, respectively.

The two-wheeler category continues to face the brunt of rural distress and the high cost of ownership. While demand for passenger vehicles continues to remain strong, the segment is still facing the heat of semiconductor shortage thus impacting supplies. Infrastructure spending by the Government increases demand for heavy commercial vehicles and tippers.

( With inputs from ANI )

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